On January 1, 2008, Klinefelter Company purchased a building for $520,000. The b

Question

On January 1, 2008, Klinefelter Company purchased a building for $520,000. The building had an estimated life of 20 years and an estimated residual value of $20,000. The company has been depreciating the building using straight-line depreciation.

b. The company changes to the sum-of-the-years'-digits method. Round your answer to nearest whole dollar.

Depreciation Expense xxxxx

Accumulated Depreciation xxxxx

c. The company discovers that it had ignored the estimated residual value in the computation of the annual depreciation each year.

Accumulated Depreciation xxxx

Retained Earnings xxxxx

(prior period adjustment)

Depreciation Expense xxxxx

Accumulated Depreciation xxxxx

(record depreciation for 2014)

Explanation / Answer

B.

Depreciable value = Purchase price - Residual value = $520,000 - $20,000 = $500,000

Annual depreciation under straight line depreciation = $500,000/20 = $25,000

Depreciation charged up to 2013 = $25,000 * 6 = $150,000

Book value as on January 1, 2014 = $520,000 - $150,000 = $370,000

Depreciable value under sum of years digit method = Book value - Residual value = $370,000 - $20,000 = $350,000

Remaining life = 20 years - 6 years = 14 years

Sum of years digit = 1+2+3+4+5+6+7+8+9+10+11+12+13+14 = 105

Depreciation for 2014 = $350,000*14/105 = $46,667

Journal entry:

Depreciation expense $46,667 Debit

Accumulated depreciation. $46,667 Credit

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